"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, November 22, 2013

Gold Squeaks Out only a Meager Bounce

Heading into the weekend, after a week in which the price of gold has fallen another $44/ounce, I expected to see a bit of a short-covering bounce as bears rang the cash register to book some good profits. We did get a bit of a bounce, if you can call a $5.00 move higher at one point more than a momentary blip on the radar screen. That being said, the market surrendered nearly all of those gains heading into the close of pit session trading so that it ended up a measly $0.50/ounce on the day.

I must say, and I do not like saying it, but that if this is all that gold can do, after a week in which it crashed through a critical level of chart support, then this market is headed for more trouble next week. I hope I am wrong about this but with the gold shares once again seeing even more selling with the HUI losing chart support at the 210 level, it does not look good for the yellow metal.

Adding to this bleak outlook, is this week's Commitment of Traders report which confirms the trend of large speculator selling of gold. Another week and another repeat of what we have been seeing since the end of October, namely, long liquidation by hedge funds as well as the institution of new short positions by this same category of traders.

Here is a partial chart showing the activity of the hedge funds since the month of June during which gold hit that spike low down near 1180. Can you see what took place? Once the market spiked down to that level, value-based buying of large size took place which drove out many of the newly placed short positions as new longs flooded into the market. That drove the market up to where it peaked near $1420 or so. From that point on however, the trend among long position holders has been lower or down while the trend among short position holders has been higher or up. In other words, the biggest speculators on the planet are selling gold, and selling lots of it.

The peak in hedge fund SHORT POSITIONS occurred in early July of this year when their combined futures and options positioned reached a substantial 80,147. This week's number is still well below that coming in at 62,589, but the number has been steadily rising since the end of October and this does not yet include the activity from Wednesday, Thursday and today, Friday, of this week. Look for this number to grow larger in next week's report barring some sort of upside reversal on Monday or Tuesday of next week.

What this translates to is very simple even if it is disconcerting for those bullish gold right now. The number of bulls continues to fall as more and more investors/traders flee the precious metals sector in favor of high yields in equities. Once again the DOW is over 16,000 and the S&P 500 has now broken firmly above the 1800 level. With those kinds of gains, who needs gold is the new trading adage.

Until something happens which derails equities and sends shock waves of fear throughout the financial system (something which rattles CONFIDENCE) it is difficult for me to envision gold moving higher other than occasional bounces from short covering. Look at the VIX or Volatility Index. It is stuck at multi-year lows. The complacency in the system is nothing short of astonishing. There isn't a care in the world in the minds of most investors/traders!

This no doubt will not especially endear me to some friends in the gold community, but the chart and the pattern is what it is. Wishing it were otherwise or complaining about it unfortunately changes nothing of the present reality. Until the bulk of market participants change their views regarding gold, the trend in the metal is down.

One last thing - hopefully these comments based off the COT report will put an end to any more of that foolish "FLASH CRASH" talk as if the gold market is being slammed lower by the nefarious bullion banks. They are NOT SELLING but are buying - the report confirms that as well. When it comes to gold, some simply refuse to open their eyes and see the reality of what is happening. The Fed has effectively herded the masses OUT OF GOLD and INTO EQUITIES. Their pals at the bullion banks no longer need to sell gold, hedge funds are doing that quite well by themselves. Any "FLASH CRASHES" are being caused by hedge fund selling; not bullion banks.

Let those who keep propagating this nonsense offer us solid evidence to prove their claims that it is the bullion banks that are behind this latest move lower in gold. Good luck with that however.

The overall NET SHORT position of the big commercial category has fallen to -12,312, their 6th smallest in many, many years. Swap Dealers also have been steady buyers since the end of October.  

December gold will enter its delivery period very soon. How much does one want to bet that it will be one of the bullion banks, namely JP Morgan on the BUY SIDE as a heavy stopper for their House Account? Hedge fund selling is being met with bullion bank buying. How do we know this? The report tells us.

Forbes Editorial Piece calls for Obama Impeachment

It is one thing for many of the more conservative oriented web sites and groups to call for the impeachment of Mr. Obama. It is quite another when a widely read establishment type of magazine such as Forbes allows an editorial calling for the same thing.

I agree wholeheartedly that the current occupant of the White House picks and chooses which laws/ parts of laws he intends to enforce or to ignore. That does not fall within the prerogative of the executive branch which is charged with faithfully executing the laws of the land. After all, that is why the Founders established an EXECUTIVE BRANCH of the government separate from the LEGISLATIVE BRANCH. The latter MAKES THE LAWS; the former ENFORCES the LAWS.

I find it most disconcerting that more members of Congress are not appalled by this lawlessness and are not jealously attempting to guard their Constitutionally-given power. The Congress is a CO-EQUAL BRANCH of the US government. It needs to start acting like it is.

Sadly, too many are more loyal to their political party rather than to that Constitution that they all took AN OATH TO DEFEND.

Keep in mind that any impeachment process basically works this way - the House of Representatives brings the charges. If voted on and agreed to by a majority, the "trial" then goes to the Senate where the actual guilt or innocence of the President is determined. Sadly for the nation, even if the House were to bring charges, party loyalty would trump Constitutional fealty and the case would die in the Senate graveyard.

Perhaps even more disconcerting for the nation is that so much of the electorate today is too dumbed-down to even understand the separation of powers and the system of checks and balances that our Founders, in their wisdom, bequeathed to us as our legacy of liberty.

Obama's Disdain For The Constitution Means We Risk Losing Our Republic
By M. Northrop Buechner

Since President Obama signed the Affordable Care Act into law, he has changed it five times. Most notably, he suspended the employer mandate last summer. This is widely known, but almost no one seems to have grasped its significance.
The Constitution authorizes the President to propose and veto legislation. It does not authorize him to change existing laws. The changes Mr. Obama ordered in Obamacare, therefore, are unconstitutional. This means that he does not accept some of the limitations that the Constitution places on his actions. We cannot know at this point what limitations, if any, he does accept.